How to defeat fraud

White collar crime has become embedded in the payroll system and its impact on the economy is untold, resulting in diminished revenues for companies as well as a possible loss of skills when those involved are let go, writes LUNGELO HLONGWA

AS A young and gullible payroll consultant, I had the opportunity to do work for a number of big and small firms in South Africa.

When I started working for a software company, I bought a Toyota Tazz. The car was brand new, with no extras really. Who needs extras when you love your job?

To me the acquisition of the said asset was no achievement, it was a necessity.

My job required that I travel extensively throughout Gauteng and owning a car was non-negotiable. It did help at the end of each month – what with all the travel expenses

– that one could claim from the company. But I digress.

The rewarding part of my job was the odd discovery of the salaries administrators who had given in to temptation and decided to help themselves to the company funds. Very often this is not the kind of story you hear as the practice is to always report on public sector crimes and corruption.

But, alas, white collar crimes are committed every day.

We don’t get to read about them that often because, let’s be honest, who cares about some nerds who found a loophole in the company s processes and took a

’ few hundred thousand or a few million rand? Nobody!

I’ll admit that during the “good old days” of the Scorpions, it was rather invigorating to see them raid some politician or doctor’s home and, if you were lucky, some tycoon ’ s home. Schadenfreude is all that was about.

It gave me a bit of joy to see the misfortune of the alleged thieves. They had it coming! Other than that, who cares, really?

Well, you should, I should, we all should and here’s why:

There are three key factors that lead to white collar crime, especially fraud: pressure, opportunity and rationalisation.

Pressure comes from problems that a would-be fraudster cannot share with others or the solution cannot be achieved by legitimate means. The problem could be drug addiction, gambling, a desire to impress friends or a loan that needs to be paid urgently.

The problems a fraudster experiences cannot be shared because they are embarrassing to the fraudster.

These

problems

tend

to threaten the status of the fraudster and, as such, almost every fraud case involves a desire to maintain a status or to attain one.

Opportunity is when the fraudster sees a gap in the system and knowing that chances of being caught are slim.

This is in a situation where there are few people who are skilled to develop and maintain systems and where the company leadership is inexperienced.

The third and final factor is rationalisation.

This is when the fraudster justifies his/her actions. It is important to note that most fraudsters are first-time offenders. They have no criminal record and see themselves as ordinary people who find themselves in a pickle.

There are many rationales that fraudsters use. A few that come to mind are: “I was borrowing the money ”, “The company is too greedy, the bosses should share the spoils” and last but not least (my favourite): “Monkey see, monkey do”.

In the payroll department especially resentment builds up among junior staff when they get exposed to the fact that their bosses earn in a month what some staff members do not even earn in a year.

So when they steal they truly believe they are doing the rest of the company a favour by pun

“ishing the greedy bosses”.

Even scarier, some may even be aware of some maladministration by their bosses, who pay themselves unwarranted bonuses or increase their salaries without the necessary permission.

The question you may have is: why are companies not reporting such crimes? The answer is simple: somebody would lose their job.

This somebody is almost always the line manager, who has signing-off powers.

To this manager, reporting the crime would mean they would have to admit dereliction and lose that hefty package and the status that goes with it. So what happens next? They lie, cheat and steal.

A conspiracy of wrongdoing goes undetected for many years. In many companies the full web of deceit can only be discovered upon the death, annual leave or retirement of staff members.

The crime is so embedded in the system it is, ironically, named white collar – an attempt to give it a veneer of respectability.

The impact of this phenomenon on the economy is untold, resulting in diminished revenues for companies as well as a possible loss of skills when those involved are eventually let go.

But not all is lost. Those in charge of payroll departments need to work very closely with the internal auditing divisions of their companies.

Internal auditors are well versed with risk mitigation strategies, so as a payroll manager you should invite these professionals to perform quick audits. As a manager, it behoves you to have a payroll-certified consultant to assist with tax year-end functions.

The best thing the leaders of companies can do is to adopt a code of ethics. Make this code public through e-mail bulletins, posters, intranet and workshops.

Last but not least, entrench a culture of whistle-blowing through initiatives such as anonymous tip-off lines. This way white collar crime can be defeated.

Hlongwa is the MD of Anderson Harryson Consulting